It takes more than a massacre on Egyptian streets to stop the Daily Mail in its tracks, more than a flat denial too. Its claim on Wednesday that the coalition partners had "pocketed a dead spinster's" £500,000 legacy was explicitly rejected by 91-year-old Joan Edwards's solicitors. On Thursday the paper asks "How many more plundered wills?" – on the basis of no evidence whatsoever.

The result is that the Tories and Lib Dems who had legitimately become recipients of a tidy donation to fill dwindling party coffers – parties need money to function in a democracy – have been forced to give it to the Treasury (not a regular Mail favourite) at the behest of unelected newspaper highwaymen. Politics is damaged in the process and Labour politicians who joined the stone-throwing are idiots.

A tabloid scam in the dog days of August when not much happens (the Mail sells few copies in Egypt) doesn't amount to much and will soon be forgotten, not least by the Mail, which will be busy recycling scary August favourites like iniquitous parking charges, online porn, pension "robbery" and middle-class drinking habits (you tipple too much, madame). Whoops. I almost left immigration off that list.

But the effect of Wednesday's yarn is to corrode what is already fragile public trust in many British institutions, not least the newspapers themselves. Despite a daily drip-drip of criticism from rightwing media groups with rival commercial interests (some of it justified) the BBC remains much more widely trusted – and rightly so. Voters under economic pressure easily feel aggrieved.

There is no denying that the major political parties face a daunting loss of members and donations. That's old news, though this week's quarterly report from the Electoral Commission – itself a Labour reform from the Blair era – underlines how bad it is becoming. The Tories got £4.11m between April and June, Labour £3.16m (£2.4m from the big unions), the Lib Dems £801,000, and Ukip £153,000 – double the previous quarter.

According to the ConservativeHome website Tory membership is probably now below 100,000, as elderly members fall away baffled - or join Ukip. Ed Miliband is engaged in another attempt to disengage his party further from the union embrace which achieved his leadership win over brother David. The Lib Dems are holding up better than Westminster wise guys (including me) predicted in 2010.

From the testimony of Joan Edwards's neighbours in a modest district of Bristol she wasn't very political and kept her views to herself, an old-fashioned private view of how to behave from an admirable old lady, a retired midwife of "Victorian" sensibility: no Facebook for her! As everyone now knows – she'd have been horrified, say friends – she left her pot to "whichever government is in office at the date of my death".

That's a bit vague, as hindsight merchants rounded up by the Mail have been quick to point out. Much clucking of tongues among the usual grisly suspects – including the foreign-funded TaxPayers' Alliance (TPA), assorted MPs (Prezza really should know better) and ex-union leader-turned-Westminster-watchdog, Sir Alistair Graham, a character straight out of a George Eliot novel.

But West Country solicitors, Davis Wood, issued a statement on Wednesday – having unwisely offered the Mail a "no comment'' on confidentiality grounds the day before – explaining that their staff had explicitly queried Edwards over the unusual wording of her will. "It was confirmed by Miss Edwards at the time of her instructions that her estate was to be left to whichever political party formed the government at the date of her death."

Shouldn't the will have said that? Probably yes, but none of us is perfect. There was no obvious need to do so, not least since – even the Mail prints this interesting fact in Thursday's small print – public-minded citizens left £7m to the nation (ie government) over the past decade – but over £15m to political parties in 401 wills, much as Edwards did. No surprise that the Tories got most (£5.6m) to Labour's £3.9m and the SNP (£2.4m) ahead of the Lib Dems (£1.7m).

Wow! So what Edwards did was not so unusual, merely vaguely worded. The Treasury has now got the cash anyway – since first the Lib Dems and then the Tories (David Cameron to the fore) bowed to Daily Mail pressure on Wednesday and handed it over. It's surely undignified to be seen to dance to the tabloid tune, not least at a time when Fleet Street is trampling over parliament in the post-Leveson war for effective press regulation.

And didn't Cameron recently have to apologise to Tory donor, Peter Cruddas, after he won a libel suit against the Sunday Times whose word No 10 had taken over cash-for-access without first checking? When will they learn?

In its "Why, Oh Why?" spot on the editorial page (as in "why, oh why is it all so awful?") Thursday's Mail carries a quickie article by the Stakhanovite Quentin Letts, currently appearing on Radio 4 while his political and theatrical reviewing takes August off. He deplores the greed of all political parties, the squalor that surrounds the link between cheques and honours and notes – a rare insight this – how much party leaders hate having to pander to donors (as they all do).

"Vanity, vanity," he chides. It is the kind of glib, heartless conclusion that passes for wisdom in the Street of Shame, where few have ever stood to be elected to anything. It's hard work.

How would these popular policies be communicated to voters? Via the newspapers which are more interested in footballers' wives? And which newspapers complain most when parties go quiet in August or the party leader (not to mention his wife) pops up in public with a bad haircut or naff clothes? The Mail is brilliant at such assassinations. Ask Gordon Brown about his holiday snaps (shirt and tie), the Blairs about Cherie's outfits, Nick Clegg about his shorts.

European politics are mostly fairly honest and pretty cheap. But the awkward fact is that voters no longer join parties in large numbers and therefore pay fewer small subscriptions. Labour traditionally raised large cheques from unions, the Tories from rich companies (no longer tolerated by shareholder power) or individuals (so did Barack Obama from unions and rich liberals, but no one seemed to mind then).

Voters don't like either source, nor does the press. Look at the way we all crawled over the latest honours list – and the donors list this week for alleged pay-offs and ulterior motives. Some suspicion is justified, much is not. Yet one obvious solution, to try and cap campaign spending (at least we don't permit paid TV ads here) and to cap donations too, has been stalled by a decade of Tory-Labour stalemate designed to damage the other side.

Contrary to what you sometimes read, the Tories are the worst offenders, Labour usually slow off the mark and naive where money is concerned. So Miliband's latest standoff with the party's paymasters at the Unite union smacks of wholesome innocence. Good luck, Mr M. Either way, it's not easy. But voters and the press are equally hostile to an increase in taxpayer funding, which already runs into millions.

Hardly surprising in a recession (or a boom actually), but it doesn't add up to a coherent attitude, let alone to a healthy situation. The Mail wants Edwards's money diverted to what it calls "her beloved NHS" (as distinct from the NHS the paper routinely libels), specifically for the hard-pressed midwifery service. Lovely, lovely. But that's not what Edwards wanted – or she'd have said so or told her solicitor.

As it is the Mail has hijacked her cheque and diverted it to the Treasury's coffers. It won't make up for the hole left by Google or Amazon's tax wheezes. On some estimates it will pay for one minute's worth of interest on government debt.